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Florida Gas Utility urges Lake City to authorize rolling natural‑gas hedging program
Summary
Florida Gas Utility presented hedging tools including futures and call options and recommended a rolling program (75% 1 year, 50% 2 years, 25% 3 years) to reduce price volatility; council heard the briefing during the April 21 meeting; no vote was taken.
Florida Gas Utility presented a briefing to the Lake City Council on April 21 recommending the city adopt a rolling natural‑gas hedging program to reduce future price volatility.
Katie Hall, general manager and CEO of Florida Gas Utility, told the council the objective of hedging is to reduce price risk rather than to “beat the market.” She said, “Hedging is a type of investment that helps reduce the risk of adverse price,” and described two commonly used instruments — futures contracts, which lock a price, and call options, which set a ceiling while allowing the city to benefit if market prices fall.
Hall showed a proposed program that would phase-in protection over multiple years: up to 75 percent of expected consumption hedged in the first year, 50 percent in the second year and 25 percent in the third year. She said strike prices would be set to meet the city’s budgeted price or come in below it, and that staff would recommend executions to the council when market conditions met the program parameters. Hall noted that hedging is most effective when prices are relatively low and stable.
Why it matters: Lake City buys gas measured in decatherms and provides service to residential and commercial customers whose budgets can be affected by rapid swings in commodity costs. Hall said the program is intended to stabilize utility rates for fixed‑income residents and to give local businesses a more predictable input cost.
Details and council context: Hall discussed market drivers such as new liquefied natural gas (LNG) demand and pipeline bottlenecks that can create price spikes. She illustrated past market behavior including a “basis blowout” in 2022 and described the tradeoffs between futures and call options, including option premiums. Hall said the utility would seek delegated parameters so that staff and Florida Gas Utility could act quickly when markets reached target levels; otherwise the speed of markets can make a council call impractical.
No final action: Council members asked questions but did not vote on any ordinance or resolution tied to the presentation on April 21. Hall and her team said they would return with any recommended authorizing language if the city chooses to pursue a hedging program.
What's next: If the council directs staff to pursue a program, staff said it would bring back proposed contract terms, parameters and a governance process for quick execution and reporting.
Ending note: The briefing aimed to give council members a technical overview and policy tradeoffs; it did not propose immediate purchases. The presentation emphasized stability rather than price‑speculation as the rationale for hedging.
